Last week, the Department of the Interiors Inspector General (IG) released a report outlining perceived shortcomings in the Bureau of Land Managements (BLMs) supervision of coal leasing. Rep. Ed Markey (D-Mass.) promptly called a hearing on the issue, which has since been postponed.
Upon the release of this report, the news media and advocates on both sides of the issue have focused on one of the reports flashier assertions: that over the past dozen years BLMs alleged undervaluation of coal deposits leased in noncompetitive modifications of existing mining rights on public lands resulted lost federal revenue of $60 million. (Thats million, with an m.) Much of the coal in question is located in the Powder River Basin, a coal-rich region that straddles southeast Montana and northeast Wyoming. The basin contains one of the largest known coal deposits in the world and accounts for about 40 percent of the nations coal supplies.
Once mining rights have been sold, the BLM allows coal companies to add up to 960 acres of land to the original lease without competitive bidding. Therein lies the rub.
The crux of the IGs report is a claim that the BLM undervalued by as much as 80 percent the coal deposits in the tracts acquired through lease modifications and in the process bypassed $60 million in royalties and fees since 2001.
But, the BLMs own rules for modifying coal-mining leases assumes that the coal seams located in the supplementary tracts are less desirable than those in the original lease owing to lesser quality, accessibility, or both. In other words, acreage containing coal that is known to be inferior is made available to mining companies through a noncompetitive process in the interest of encouraging development of coal deposits where such development would otherwise be viewed as uneconomic.
Lacking sufficient documentation, the IGs report admits that it is impossible to gauge accurately the fair market value of the inferior coal deposits in question. In the absence of such information, the IG assumed dubiously that the value of the coal in the acreage added to a lease is the same as the coal in the original lease.
Also omitted from the IGs report is the very inconvenient truth that the blind bidding process utilized in noncompetitive lease extensions frequently means that coal companies bid more than the fair market value established by the BLM. Since bids must meet or exceed that value to be accepted, revenues are generated on a regular basis.
In its report, the IG says that, given the massive scale of leasing operations, every penny counts, and even a one-cent disparity can result in a $3 million revenue difference. If this is the case, shouldnt all of the extra pennies be counted as well?
Any consideration of the IGs reportand its estimate that $60 million in revenue was bypassed over the course of a dozen yearsmust be put in context. The federal government collected $2.4 billion from coal royalties and lease payments in 2012 alone and $4.8 billion over the past three years. (Thats billion with a b.)
These revenues are rising sharply, too, as exports to Asian markets expand. As the New York Times notes, approval of new coal export projects will add significantly more every year than $60 million to the federal treasury.
Certainly more than $60 million.
|William F. Shughart II is a Research Director and Senior Fellow at The Independent Institute, J. Fish Smith Professor in Public Choice in the Jon M. Huntsman School of Business at Utah State University, and editor of the Independent Institute book, Taxing Choice: The Predatory Politics of Fiscal Discrimination.|